RBI nod to Fincare SFB–AU SFB merger; to be effective from April

The Reserve Bank of India (RBI) has approved the Fincare Small Finance Bank–AU Small Finance Bank merger by sanctioning the scheme of amalgamation of Fincare Small Finance Bank Ltd. "The scheme has been sanctioned in the exercise of the powers contained in sub-section (4) of Section 44A of the Banking Regulation Act, 1949," says the central bank.

The effective date of the merger will be April 01, 2024. All the branches of Fincare Small Finance Bank will function as branches of AU Small Finance Bank Ltd. with effect from April 01, 2024, the RBI says in its latest order.

Shares of AU Small Finance Bank are trading down today compared to the previous close. The scrip is currently trading at ₹577.80, down 0.34% or 2 points on the BSE, and the m-cap stands at ₹38,641.23 crore.

AU SFB had announced the merger with Fincare SFB on October 29, 2023. The merger will be effected through a share swap transaction, and shareholders of Fincare SFB will receive 579 shares in AU SFB for every 2,000 shares held in Fincare SFB. Post the transaction, shareholders of Fincare SFB will hold a 9.9% stake in AU Small Finance Bank.

Apart from the RBI, the deal proposal has to pass through shareholders (for both Fincare SFB and AU SFB), and CCI. The transaction completion is also subject to a capital infusion of ₹700 crore by promoters of Fincare SFB.

AU says all Fincare SFB customers will have seamless integration into the AU SFB and benefit from a wider product and service offering. They will be onboarded as part of the AU post-merger, with MD & CEO of Fincare SFB to be designated Dy CEO of AU SFB.

Divya Sehgal, the current director of FincareSFB’s board, will join the AU SFB’s board. 

In terms of business, Fincare SFB has 54 lakh customers with 93.6% of microfinance loans located in rural areas. The lender has total deposits of ₹9,453 crore of which 79% are retail, with gross advances of ₹10,541 crore consisting of microfinance (54%), micro business loans (MBL) (19%), affordable housing loans (14%) and gold loans (10%).

The lender boasts of a network of 1,292 banking outlets across 23 states and union territories, with a stronger presence in South India, and an employee strength of 14,867. The long-term credit rating stands at ICRA A; Positive and CARE A; Stable.

In terms of performance, the merged entity will have 2,334 touchpoints, 98 lakh customers, 43,000 employees and a combined balance sheet size of ₹1.1 lakh crore as of September 30, 2023.

AU Small Finance Bank, which has the highest m-cap among small finance banks in India, has total assets of ₹95,977 crore, net worth of ₹11,763 crore as of September 30, 2023. Its turnover was ₹9,240 crore, and profit was ₹1,428 crore for the year ended on March 31, 2023. Fincare Small Finance Bank had assets worth ₹14,777 crore as of September 30, 2023.